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10 Tax Moves You Should Make Before December 31

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10 Tax Moves You Should Make Before December 31

It’s hard to believe that it’s already December, but 2015 is quickly drawing to a close. Tax day for Americans is still more than four months away, but the financial decisions you make in the last remaining weeks of the year can make a big impact on the size of your 2016 tax bill.

Here’s a list of 10 year-end tax tips from Bankrate.

1. Defer Your Income

Identify where the cutoffs are in the 2016 tax brackets, and, if possible, defer some or all of your 2015 income that will fall in the highest bracket. This tip is especially important for earners drawing upwards of $406,750, who would otherwise be subject to the 39.6 percent top rate.

2. Add To Your 401(K)

Go ahead and put as much 2015 income as you can afford into your 401(k) plan. Income placed in 401(k) plans can grow tax-free until it is withdrawn in retirement and likely taxed at a much lower rate.

Related Link: 5 Small-Business Tax Loopholes You Should Take Advantage Of

3. Review FSA Balances

Similar to the 401(k), money added to a Flex Spending Account (FSA) is not taxed immediately. However, the majority of these accounts require that the balance be used by the end of the year. Make sure to confirm by the end of the year that you have used any FSA balance that would otherwise be lost.

4. Harvest Tax Losses

Year-end selling can be a useful tool when it comes to using capital losses to offset capital gains. Asset sales must take place by December 31 to impact 2015 capital gains totals. Net capital losses of up to $3,000 can be used to reduce ordinary income as well.

5. Check For Home Ownership Breaks

There are a number of homeownership tax breaks, and January mortgage payments made by December 31 allow for mortgage interest to be deducted on your 2015 tax payments.

6. Bunch Deductible Expenses

There are many ways to reduce adjusted gross income (AGI) on Schedule A, but often deductions must meet a minimum threshold. For example, medical and dental expense must exceed 10 percent of AGI. To meet these deduction thresholds, start consolidating eligible expenses as soon as possible.

7. Add To Or Open An IRA

If you don’t have a 401(k) or have maxed out your annual contribution, contributing to an Individual Retirement Account (IRA) is another way to defer income taxes. In addition, lower earners may also be eligible to claim the retirement savings contribution credit as well.

8. Donate To Charities

Charitable gifts and donations are not only tax-deductible, but they are a noble use of disposable income.

9. Pay College Tuition Early

By paying spring semester tuition by December 31, you can claim the American Opportunity Tax Credit on your 2015 return. The credit is worth up to $2,500 and can provide up to $1,000 in refunds, even if you owe no taxes.

10. Check Your Health Insurance

You owe a tax penalty for any month of 2015 you didn’t have adequate health coverage. Based on the 2015 penalty rates, a family with three or more uninsured members could face a fine of more than $975 for the year, depending on income levels.

Americans work hard for their money, so why not take the last few weeks of 2015 to use these 10 tax tips and make sure that you hold onto as much of your income as you can. When April 15, 2016 rolls around, you’ll be glad you did.

Image Credit: Public Domain

 

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Posted-In: 401(k) Bankrate FSA tax season IRAEducation Top Stories Personal Finance General Best of Benzinga

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